Competing through the supply chain 3rd edition Alan Harrison and Remko van Hoek A concise, applied and strategic introduction to the subject of logistics and supply chain management, perfect for modern managers and students of logistics and supply chain management Logistics and supply chain management continue to transform the competitive landscape and have become one of today’s key business issues This third edition of Logistics Management and Strategy continues to take a practical, integrated and international approach to logistics and includes the very latest research to reflect the innovative and exciting developments in this subject area A clear framework guides the reader through the four parts of the book, covering: l an introduction to logistics and its contribution to competitiveness and value creation, l leveraging logistics operations within the context of the customer, l supplier partnerships, interfaces and the challenges of integration, l leading-edge thinking in logistics and the future challenges ahead Every chapter features case studies with study questions, activities and end of chapter discussion questions to help students explore logistical concepts in operational detail Teaching support notes and PowerPoint slides for lecturers can be downloaded from the book’s website at www.pearsoned.co.uk/harrison ‘Well written and contains a wealth of valuable ideas and concepts.’ Dr Jan de Vries, University of Groningen ‘Very up-to-date, both in terms of its conceptual framework and the topics covered Remarkably clear and easy to read.’ Dr Tony Whiteing, University of Huddersfield Alan Harrison is Professor of Operations and Logistics at Cranfield School of Management, and Director of Research at The Cranfield Centre for Logistics and Supply Chain Management Logistics Management and Strategy Competing through the supply chain 3rd edition 3rd edition Harrison and van Hoek New to this edition… l more on reverse logistics together with green, ethical and CSR issues, l revised chapters on supply chain planning and control and on agility, l fully revised final chapter ties in the future challenges facing logistics more closely with the rest of the book Logistics Management and Strategy Logistics Management and Strategy Remko van Hoek is Professor of Supply Chain Management at The Cranfield Centre for Logistics and Supply Chain Management He is also Vice President Procurement at Nuon in the Netherlands www.pearson-books.com 9780273712763_03_COVER.indd Alan Harrison and Remko van Hoek 18/10/07 13:56:29 LOGI_A01.QXP 3/17/08 9:35 AM Page i Logistics Management and Strategy Competing through the supply chain LOGI_A01.QXP 3/17/08 9:35 AM Page ii We work with leading authors to develop the strongest educational materials in logistics, bringing cutting-edge thinking and best learning practice to a global market Under a range of well-known imprints, including Financial Times Prentice Hall, we craft high quality print and electronic publications which help readers to understand and apply their content, whether studying or at work To find out more about the complete range of our publishing, please visit us on the World Wide Web at: www.pearsoned.co.uk LOGI_A01.QXP 3/17/08 9:35 AM Page iii Logistics Management and Strategy Competing through the supply chain Third Edition Alan Harrison Remko van Hoek LOGI_A01.QXP 3/17/08 9:35 AM Page iv Pearson Education Limited Edinburgh Gate Harlow Essex CM20 2JE England and Associated Companies throughout the world Visit us on the World Wide Web at: www.pearsoned.co.uk First published 2002 Second edition published 2005 Third edition published 2008 © Pearson Education Limited 2002, 2005 © Alan Harrison and Remko van Hoek 2008 The rights of Alan Harrison and Remko van Hoek to be identified as authors of this work have been asserted by them in accordance with the Copyright, Designs and Patents Act 1988 All rights reserved No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without either the prior written permission of the publisher or a licence permitting restricted copying in the United Kingdom issued by the Copyright Licensing Agency Ltd, Saffron House, 6–10 Kirby Street, London EC1N 8TS All trademarks used herein are the property of their respective owners The use of any trademark in this text does not vest in the author or publisher any trademark ownership rights in such trademarks, nor does the use of such trademarks imply any affliliation with or endorsement of this book by such owners ISBN: 978-0-273-71276-3 British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data Harrison, Alan, 1944– Logistics management and strategy : competing through the supply chain / Alan Harrison, Remko van Hoek.— 3rd ed p cm Includes bibliographical references and index ISBN-13: 978-0-273-71276-3 (pbk : alk paper) Business logistics Industrial management I Hoek, Remko I van II Title HD38.5.H367 2008 658.5—dc22 2007046447 10 11 10 09 08 Typeset in 9.5pt Stone Sans by Printed and bound in Malaysia The publisher’s policy is to use paper manufactured from sustainable forests LOGI_A01.QXP 3/17/08 9:35 AM Page v To Nick, Katie, Maryl and Ticho, with love LOGI_A01.QXP 3/17/08 9:35 AM Page vi LOGI_A01.QXP 3/17/08 9:35 AM Page vii Contents Foreword Preface Author’s acknowledgements Publisher’s acknowledgements How to use this book Plan of the book xv xvii xix xx xxiii xxv Part One COMPETING THROUGH LOGISTICS Logistics and the supply chain Introduction 1.1 Logistics and the supply chain 1.1.1 Definitions and concepts 1.1.2 Supply chain: structure and tiering 1.2 Material flow and information flow 1.2.1 Material flow 1.2.2 Information flow 1.3 Competing through logistics 1.3.1 Hard objectives 1.3.2 Supportive capabilities 1.3.3 Soft objectives 1.3.4 Order winners and qualifiers 1.4 Logistics strategy 1.4.1 Defining ‘strategy’ 1.4.2 Aligning strategies 1.4.3 Differentiating strategies Summary Discussion questions References Suggested further reading Putting the end-customer first Introduction 2.1 The marketing perspective 2.1.1 Rising customer expectations 2.1.2 The information revolution 2.2 Segmentation 2.3 Quality of service 2.3.1 Customer loyalty 3 12 12 14 15 16 18 22 23 25 26 27 28 30 31 31 32 33 33 34 35 35 36 44 45 LOGI_A01.QXP viii 3/17/08 9:35 AM Page viii Contents 2.3.2 Value disciplines 2.3.3 Customer relationship management (CRM) 2.3.4 Measuring service quality 2.4 Setting priorities for logistics strategy 2.4.1 Step 1: Diagnose current approach to market segmentation 2.4.2 Step 2a: Understand buying behaviour 2.4.3 Step 2b: Customer value analysis 2.4.4 Step 3: Measure logistics strategy driver 2.4.5 Step 4: Specify future approach to market segmentation Summary Discussion questions References Suggested further reading Value and logistics costs Introduction 3.1 Where does value come from? 3.1.1 Return on investment (ROI) 3.1.2 Financial ratios and ROI drivers 3.2 How can logistics costs be represented? 3.2.1 Fixed/variable 3.2.2 Direct/indirect 3.2.3 Engineered/discretionary 3.3 Activity-based costing (ABC) 3.3.1 ABC example 3.3.2 Cost–time profile (CTP) 3.4 A balanced measurement portfolio 3.4.1 Balanced measures 3.4.2 Supply chain management and the balanced scorecard 3.4.3 Supply chain financial model 3.5 Supply chain operations reference model (SCOR) Summary Discussion questions References 46 47 50 50 50 52 53 54 54 57 58 63 64 65 65 66 67 69 71 71 76 78 81 82 83 85 86 87 88 89 93 94 95 Part Two LEVERAGING LOGISTICS OPERATIONS Managing logistics internationally Introduction 4.1 Drivers 4.1.1 4.1.2 4.1.3 4.1.4 and logistics implications of internationalisation Logistical implications of internationalisation Time-to-market Global consolidation Risk in international logistics 99 99 101 102 105 106 109 LOGI_A01.QXP 3/17/08 9:35 AM Page ix Contents 4.2 The tendency towards internationalisation 4.2.1 Focused factories: from geographical to product segmentation 4.2.2 Centralised inventories 4.3 The challenges of international logistics and location 4.3.1 Extended lead time of supply 4.3.2 Extended and unreliable transit times 4.3.3 Multiple consolidation and break points 4.3.4 Multiple freight modes and cost options 4.3.5 Location analysis 4.4 Organising for international logistics 4.4.1 Layering and tiering 4.4.2 The evolving role of individual plants 4.4.3 Reconfiguration processes 4.5 Reverse logistics 4.6 Managing for risk readiness 4.6.1 Immediate risk readiness 4.6.2 Structural risk readiness 4.7 Corporate social responsibility in the supply chain Summary Discussion questions References Suggested further reading Managing the lead-time frontier Introduction 5.1 The role of time in competitive advantage 5.1.1 Time-based competition: definition and concepts 5.1.2 Time-based initiatives 5.1.3 Time-based opportunities to add value 5.1.4 Time-based opportunities to reduce cost 5.1.5 Limitations to time-based approaches 5.2 P:D ratios and differences 5.2.1 Using time as a performance measure 5.2.2 Using time to measure supply pipeline performance 5.2.3 Consequences when P-time is greater than D-time 5.3 Time-based process mapping 5.3.1 Stage 1: Create a task force 5.3.2 Stage 2: Select the process to map 5.3.3 Stage 3: Collect data 5.3.4 Stage 4: Flow chart the process 5.3.5 Stage 5: Distinguish between value-adding and non-value-adding time 5.3.6 Stage 6: Construct the time-based process map 5.3.7 Stage 7: Solution generation ix 111 111 112 115 116 116 116 117 118 120 120 121 122 129 130 130 131 132 136 137 137 137 139 139 140 140 141 141 144 146 146 147 148 150 153 154 154 155 155 155 156 156 LOGI_C10.QXP 302 17/10/07 10:45 Page 302 Chapter 10 • Logistics future challenges and opportunities In order to address these shortcomings and contribute to supply chain readiness, Reckitt Benckiser created a new role in the supply chain team – a new product introduction forecasting manager This manager is dedicated to working with functions involved in the NPD process specifically to drive alignment around the forecast The manager flags forecasting differences between functions and spots possible challenges in assumptions and works across functions to arrive at a more accurate forecast Next, the forecasting manager supports the translation of the forecast into a supply chain capacity plan, and forms a natural spotlight in the organisation for avoiding bottlenecks With supply chain readiness for NPD improved and with fewer execution issues and fire fighting the supply chain team has manoeuvred itself into a better position It is less likely to be distracted by last-minute crises and more likely to be considered a useful member of the NPD team that can make valuable contributions based upon the capability it has to offer Activity 10.1 Assume for a moment that you are a supply chain manager invited into a new product development team meeting, what questions would you ask of the team to ensure you can prepare your supply chain for effective product launch? 10.2 Selecting collaborative opportunities upstream and downstream Key issue: Where and how to place bets on collaborative opportunities upstream and downstream in the supply chain Once a company has its internal organisation more aligned around supply chain opportunities, priorities and initiatives, it is in a better position to select external collaborative opportunities In some respects, this is like placing bets – but not like playing roulette, if managed carefully! There are new developments pertaining to selecting opportunities downstream (with customers) and upstream (with suppliers and partners) Specifically, the notion of being selective is key Some argue that the term ‘partnership’ is one of the most inflated terms in modern business and it is well known that you can only truly partner with a few So where should we focus upstream and downstream in the supply chain for maximum benefit? Selecting upstream collaboration opportunities Beyond sourcing parts and services needed to make and deliver products and service for customers, firms are increasingly looking at collaboration opportunities in new product development and R&D Of course companies can only this really effectively when they are aligned internally first (see section 10.1 above) Procter & Gamble has a stated objective to move towards having 50 per LOGI_C10.QXP 17/10/07 10:45 Page 303 Selecting collaborative opportunities upstream and downstream 303 cent or more of its innovation from external partners, and has launched a programme called ‘Connect ϩ Develop’ to enable this (see Figures 10.3 and 10.4) The company has tackled this diligently: ● They have established a dedicated organisation with senior leadership, programme management, deal makers, business developers and engineers ● They have developed a ‘needs list’ containing technologies in which the company is interested This helps to focus the search for innovation, and serves as a screening tool for assessing collaborative opportunities ● Account managers will steward partner innovations into the organisation and throughout a structured and well-defined process ● P&G can structure partnerships in multiple forms depending on the type of innovation and application Figure 10.3 shows the P&G ‘Connect ϩ Develop’ philosophy, and Figure 10.4 illustrates examples of ‘Connect ϩ Develop’ efforts What consumers need What’s possible through P&G What’s possible with your innovation Figure 10.3 Connect + Develop allows us to quickly create and introduce new innovations by incorporating the capabilities of external resources The P&G ‘Connect ؉ Develop’ philosophy (Source: Procter and Gamble Connect ϩ Develop program) Selecting downstream opportunities: which customers to give the keys to our car? Partnering with customers can be a much scarier notion than partnering upstream It implies sharing a lot of inside information with customers and talking openly about what a company cannot Traditionally, this is not how companies (and sales staff) sell When making the mind-shift, however, there is a lot of potential on the table Specifically, some companies are initiating customer collaboration efforts that involve working to resolve supply chain problems jointly with customers to serve the end-consumer better Among the areas LOGI_C10.QXP 304 17/10/07 10:45 Page 304 Chapter 10 • Logistics future challenges and opportunities Connect ؉ Develop successes Consumers around the world have already realised the benefits of P&G’s Connect ϩ Develop strategy The following products and technologies are examples of the mutually beneficial collaborations we have established through external connections Ready-to-go technologies P&G introduced Bounce, the world’s first dryer-added softener, after acquiring the product technology from the independent inventor who developed the innovative fabric-care solution Ready-to-go products By acquiring the newly introduced SpinBrush, P&G was able to bring a superior oral care brand to market quickly, without undertaking the time and expense of developing an entirely new product Ready-to-go packaging Several of our Olay Skin Care products now utilise new consumer-preferred pump dispenser originally developed by a European packaging products company P&G led a collaborative improvement process to make the original pumps more effective prior to their launch in Olay’s North American markets Commercial partnerships P&G found the perfect complement to the Swiffer brand in a hand-held duster developed by a Japanese competitor After purchasing the product, P&G leveraged elements of existing manufacturing processes and advertising components to launch Swiffer Duster within 18 months Figure 10.4 Examples of ‘Connect ؉ Develop’ (Source: Procter and Gamble Connect ϩ Develop program) where fruitful collaboration opportunities have been found are several process integration areas, including: ● linking supplier delivery to customer warehousing and materials handling processes; ● linking supplier to customer forecasting; ● linking customer ordering to supplier delivery planning systems Additionally, a focus on serving the end-consumer better implies collaborative opportunities such as: ● supplier suggestions for campaigns and merchandising; ● joint product and packaging design; ● joint product mix development to improve inventory turns on the retailer’s shelf LOGI_C10.QXP 17/10/07 10:45 Page 305 Managing with cost-to-serve to support growth and profitability 305 An example of the latter would be for a consumer product company to suggest replacing certain of its own products on a retailer’s shelf with others, and suggesting improved store and shelf planograms Essentially, these collaborations centre around a supplier actively (re-)designing part of the customer’s operation and adjusting its own systems accordingly These efforts can come at an investment premium and involve market risks Hence it is important to select wisely which customer relationships to engage with in these collaborative efforts One global manufacturer uses a set of screens to evaluate customer relations in terms of collaboration opportunities Counter to common wisdom, they not look so much at the size of the customer account but rather at the nature of the customer’s business and their relationship The company may select smaller customers for investment in collaboration for reasons such as: it could be one of the rising stars in the industry worth investing in now, or it might be a particularly innovative customer investment which could have a much broader spin-off The characteristics the company uses to evaluate customer relationships are not so much financial or sales-oriented, but focus on ‘soft’ factors (see section 1.3.3) such as openness to innovative suggestions and willingness to experiment The company found that its efforts to evaluate customer relationships before offering up collaborative options helped in prioritising projects for greater returns and greater opportunities for success Activity 10.2 What are the main risks involved in collaborating with customers of a focal firm? Consider industrial as well as consumer sectors by referring to Table 2.2 Why is internal stewardship and process ownership necessary for collaborations? 10.3 Managing with cost-to-serve to support growth and profitability Key issue: How we leverage full service costs management for growth and profit? We discussed activity-based costing (ABC) in section 3.3 Assessing the cost-toserve uses ABC methodology to quantify the actual costs involved in fulfilling customer orders Despite all the progress in the last few years on moving from functional organisations to process and supply chain organisations, most firms today are still focused on managing efficient supply of products against customer demand Cost rationalisation efforts centre on using global sourcing and purchasing to reduce material costs As a result, supply chain cost reduction has been executed in isolation of customer value and revenue generation The undesirable outcome is to rationalise service to the most valuable customers This has been brought about by lack of a clear sense of customer relationship investment opportunities, and by the inability to have a constructive discussion with sales and customer service about what services are valuable for which customers, and 306 17/10/07 10:45 Page 306 Chapter 10 • Logistics future challenges and opportunities what services not contribute Figure 10.5 shows how costs and revenue have been moving in opposing directions Customer profitability analysis helps dispose of that shortcoming, as it assesses an organisation’s ability to profitably fulfill individual customer orders, and to serve individual customer accounts and distribution channels with current supply chain design and customer service systems Essentially, this analysis changes the economic starting point from internal costs to working from customer orders upstream Cost and revenue spinning in opposite directions Cost Revenue lead to an unfavourable profit distribution Profitability LOGI_C10.QXP 150% of profitability 100% of profitability Best customers Average customers 50% Figure 10.5 Worst customers Customers The dynamics of customer profitability Figure 10.5 also shows how customer profitability analysis can reveal how 150 per cent of profits are generated by 50 per cent of the customer base, and how 50 per cent of customers are currently unprofitable This finding assumes that most traditional accounting systems are very accurate in tracking cost of goods sold (source and make costs) but underperform in tracking logistics costs to individual customers (deliver costs) Once shipment, service and customisation costs are added on a ‘per customer’ basis, a different profitability curve emerges This analysis has several implications, including: ● service terms and conditions for unprofitable accounts need to be changed, and converted into profitable alternatives; ● the most important customers need more attention, by focusing more customer service efforts on these customers; ● prices should be increased for unprofitable customers, or they should be gradually removed from the focal firm’s sales portfolio altogether Most importantly, customer profitability analysis enables focal firms to link supply chain efforts to customer value and market opportunity in a way that improves customer relations and revenues in a profitable manner LOGI_C10.QXP 17/10/07 10:45 Page 307 Managing with cost-to-serve to support growth and profitability 307 The concept of cost-to-serve shows that the supply chain contributes significantly to profitability Cost-to-serve also enables a local firm to home in on the best growth opportunities, which would otherwise be difficult to identify Rationalising a product mix is a good area of application, as shown in Case study 10.2 below CASE STUDY 10.2 Clorox supports growth by cutting SKUs Companies want to grow, and one of their commonest strategies is to create new products These may increase revenues, but of course they not guarantee profits In fact, product proliferation often reduces margins One company we studied found that the bottom 40 per cent of its products generated less than per cent of revenue, and the bottom 25 per cent of its products were highly unprofitable Several years ago, Clorox, a $4 billion consumer products company, realised it needed to address the problem of underperforming products At the time, 30 per cent of the company’s stock keeping units (skus) were falling short of sales volume and profit targets Clorox responded by developing a formal process for evaluating sku performance and making decisions about which products to cut As part of the annual business planning process, annual reduction goals are established for underperforming skus, as well as a ‘glidepath’ (specific goals by month) and specific action items for reaching the reduction goal Specific action items may include discontinuance, substitution, or increasing distribution A cross-functional sku management process team, sponsored by the CFO and led by the director of supply chain planning, meets monthly to track progress, spotlight businesses that are off-target, discuss process improvements, and resolve policy issues The team includes director- or VP-level representatives from sales, marketing, finance and product supply This team uses a ‘dashboard’ (selected key measures of performance) to evaluate the performance of skus against annual sales volume and profit goals (or hurdles) The dashboard also rates the performance of each business according to the proportion of skus that meet hurdles Business are graded ‘green’ if they are exceeding goals; yellow if they are within per cent of target and red if they are more than per cent from target ‘Red’ businesses are required to specify tactics to bring their proportion of products meeting hurdle rates in line with goals The executive teams of ‘red’ businesses typically must identify underperforming skus that will be eliminated, and specify the strategy for eliminating them Like any business tactic, product rationalisation must be used cautiously Many companies have tried to tackle this issue by ruthlessly cutting the product portfolio The risk, though, is that a company cuts too deeply into its revenue streams and finds it has discontinued products that key customers care for, damaging important customer relationships Clorox frequently reviews product lines with customers to optimise the product mix on the shelf Today, more than 90 per cent of Clorox’s skus meet volume and profit hurdles, up from 70 per cent four years ago Retail sales per sku have grown by more than 25 per cent, the return on products has increased and retail customer service levels have improved Clorox now leads its peers in retail sales per sku in the majority of its categories (Source: Based on van Hoek and Pegels, 2006) LOGI_C10.QXP 308 17/10/07 10:45 Page 308 Chapter 10 • Logistics future challenges and opportunities Questions What reasons for and against product proliferations might different functions use? What reasons need to be considered for discontinuing and continuing skus? 10.4 The supply chain manager of the future Key issue: What are the changing needs and requirements that apply to the most effective supply chain managers? Ultimately, the purpose of this book is to support the development of effective supply chain managers This is arguably the most important job to begin with In that respect it should be noted that today’s and tomorrow’s supply chain manager looks very different from the supply chain staff of the recent past There are several key capabilities that will make or break supply chain managers of the near future: ● These managers need to be effective at interfacing with customers This is new because in the past supply chain staff used to be almost completely internally and operationally focused Sales monopolised the customer, leaving supply chain managers short of ‘supply chain relevant’ customer insight ● Functional knowledge is a base requirement (this used to be a differentiator, now it is a qualifier) ● They need to have strong interpersonal skills (van Hoek et al., 2002) Supply chain staff used to be technical and operational in background and training They were heavily focused internally, without the ability to align peers around efforts and priorities, and unable to engage business people in their efforts ● They need to have general management and strategic management capabilities and skills Hence, they should no longer be solely operationally focused and boxed in, which makes them unable to integrate and be seen as contributing to corporate strategic goals ● They need to be able to develop and foster relationships internally and externally (as opposed to being focused only on running an operation) ● They need to be able to translate supply chain efforts and jargon into business language that their peers can respond to and relate to their own day-to-day efforts ● They need to have a service ethic that does not include always saying ‘yes’ Traditionally, supply chain people have either been very good at saying ‘no’ to special requests, or saying ‘yes’ all the time They therefore need to manage trade-offs in operations, while finding creative ways to serve This will help supply chain managers avoid traditional pitfalls such as: ● being unable to align the organisation around supply chain opportunities; LOGI_C10.QXP 17/10/07 10:45 Page 309 The supply chain manager of the future 309 ● lacking crucial voice of the customer (VoC, section 7.2.1) insights to achieve success with final customers; ● being only operationally focused, with limited insight into strategic business goals; ● taking initiatives in an effort to help peers, but not succeeding due to the points listed above Activity 10.3 Consider what courses are key for a supply chain student to follow, in addition to supply chain programmes Find an example of a recent supply chain job posting at a management level, review this for competency requirements and propose how this might be modified to fit the future challenges in the area Finally, we have a few pointers for the supply chain managers of the future: ● Traditional operations people are often seen as being best at saying ‘no’ Avoid saying ‘no’ for technical reasons, but ask about the business need that a request serves ● Do not rely on technology as a ‘be all and end all’ Most difficult supply chain challenges can at best be supported by technology, but they mostly involve people- and change-related issues ● Supply chain people often suffer from initiative overload Avoid taking in all business requests and saying ‘yes’ too often ● Avoid being caught out by taking initiatives without clear business and crossfunctional involvement, ownership, sponsorship and goal sharing ● Traditional supply chain people often spend a lot of time taking calls about problems, fighting fires and being the hero of the day But this can distract from working on structural solutions that will prevent those problem calls from happening to begin with So stop fixing things, and start solving problems ● Traditional supply chain people were born and raised in areas of functional expertise and have built their careers around that This leads to communication and business alignment issues Supply chain management is a crossfunctional job So stop being a functional expert, and start being a business general manager ● Think growth, not just cost containment The supply chain is often called upon to deliver savings and operational synergies – most often in tough times and during mergers, the supply chain is called upon first While the supply chain has a key role to play here, an emphasis on cost containment underestimates the possible contribution of the supply chain to growth, and keeps it in a negative box – insulated from the happy times during periods of growth! ● Start with the voice of the customer as an ally and ultimate judge LOGI_C10.QXP 310 17/10/07 10:45 Page 310 Chapter 10 • Logistics future challenges and opportunities Summary What does ‘leading edge’ logistics envisage in terms of the supply chain of the future? ● The ability to align the organisation internally around supply chain opportunities, priorities and efforts in order to avoid partial, ineffective or failed supply chain improvement efforts ● The capability to spot and select the limited number of collaborative opportunities upstream with partners and suppliers, and downstream with customers ● The capability to map true and complete cost to fulfil customer orders and to manage services and costs for increased profitable growth ● The development of a ‘new breed’ of supply chain managers that will help realise all of the above We hope the readers of this book will have picked up insights and lessons that they can use on their journey to create supply chains of the future Discussion questions We started out in Chapter by defining supply chain management as ‘Planning and controlling all of the business processes that link together partners in a supply chain in order to serve the needs of the end-customer’ How will leading-edge developments covered in this chapter contribute to this vision? Suggest how the four change areas discussed in this chapter apply to our model of the supply network (Figure 1.2) and to the integration of demand and supply shown in Figure 1.7 References van Hoek, R and Chapman, P (2006) ‘From tinkering around the edge to enhancing revenue growth: supply chain – new product development alignment’, Supply Chain Management, An International Journal, Vol 11, No 5, pp 385–89 van Hoek, R.I., Chatham, R and Wilding, R.D (2002), ‘People in supply chains: the critical dimension’, Supply Chain Management, An International Journal, Vol 7, No 3, pp 119–25 van Hoek, R and Mitchell, A (2006) ‘Why supply chain efforts fail; the crisis of misalignment’, International Journal of Logistics, Research and Applications, Vol 9, No 3, pp 269–81 van Hoek, R and Pegels, K (2006) ‘Growing by cutting sku’s at Clorox’, Harvard Business Review, April, p 23 Suggested further reading 2016: The future value chain, Global Commerce Initiative, Capgemini, Intel Harrison, A and White, A (2006) Intelligent distribution and logistics, IEE Proceedings of Intelligent Transportation Systems, Vol 153, No 2, pp 167–80 LOGI_Z01.QXP 17/10/07 10:45 Page 311 Index activity-based costing (ABC) 81–4, 94 activity time 166 agile practices 219–26, 227 and joint decision making 222–3 measures putting end-customer first 223–4 sales and operation planning 225–6 shared goals to improve virtual integration 224–5 agile supply chain 203–28 case studies 207–9, 212–14 characteristics and capabilities 206–11 concept of 204–19 operating environments 211, 214 preconditions 214–18 air miles 107–8 Alcoa 225 Alfa Laval 299–301 alignment, internal 298–301 alignment compass 300 apparel industry continuous replenishment 240–1 global supply chain 126–8 arcs of integration 236 Aristocrat Leisure Ltd 207–9 arm’s length relationship 267 assemble to order (ATO) 150, 161 AutoCo 52, 55 automotive industry just-in-time ( JIT) production 190–2 supplier associations 277 supply chain relationships 269–73 B2B (business to business) 35, 57, 224, 238 B2C (business to customer) 35, 57 balanced measurement portfolio 85–8, 89 balanced scorecard 87–8 batches, size 177–8, 197 Batman, case study 48–9 behavioural segmentation 37 BhS 257–60 bill of materials (BOM) 176, 181 BMW 23, 54, 270 Bond plc, case study 75–6 Boots The Chemists (BTC) 38 Bosch 269 Bose Corporation 237 bottleneck items 268 break-even charts 74–5 break-even-time 143, 144 buffer stock 178, 210 bulk transportation 109 bullwhip effect 182–3 business customers 34 business processes 205 buying behaviour 52–3 Cadbury Schweppes 104–5 CalsonicKansei 273 capital expenses, reduction 144–5 case studies agile supply chain 207–7, 212–14 centralised inventory 114–15 collaborative planning, forecasting and replenishment (CPFR) 248–50 corporate social responsibility 133–5 continuous replenishment 240–1 costs 75–6, 77–8, 79–80 customer response measurement customer service 45, 48–9, 58–63 direct product profitability 77–8 efficient consumer response (ECR) 246–7 internal alignment 299–301 international logistics 104–5, 107–8, 126–8 just-in-time ( JIT) production 187–9, 190–2 logistics 4–5 material flow 13–14 P:D ratios 151–3 schedule variability 19–21 segmentation 37–9, 40–1, 42–3, 212–13 stock keeping units 307 strategic partnerships 286–8 supplier networks 278–80, 282–4 supply chain alignment 28 supply chain relationships 269–73 time-based process mapping 157–61 cash 68–9 category management 243–4 Caterpillar Inc 12 centralised inventory 112–15 chain logistics 221 LOGI_Z01.QXP 312 17/10/07 10:45 Page 312 Index changeover cost 178 rapid 197 chaos theory 183 ChemCo 286–8 Chico 240 Christmas, retailing 37–8 Chrysler 131 CleanCo, case study 42–3, 50 Clorox 307 Coca-Cola 101 collaboration downstream 303–5 electronic 260, 261 upstream 302–3 collaborative planning 239 collaborative planning, forecasting and replenishment (CPFR) 248–52, 261 competitive advantage 140–6 competitive profile 53, 54 competitiveness, and logistics 15–25 complexity, cost of 215–18 composite distribution centres computers see information technology consumers definition 35 efficient consumer response (ECR) 67, 204, 242–7, 261 see also customers Continental Tyres 131 continuous replenishment 239, 243–4 case study 240–1 core competencies 126–7 corporate social responsibility (CSR) 133–5, 136 cost advantage 18 cost of complexity 215–17 cost time profile (CTP) 85 costs activity-based costing (ABC) 81–4, 94 case studies 75–6, 77–8, 79–80 cost time profile (CTP) 83–4, 85 direct costs 76–8 discretionary 78–80 engineered 78–80 fixed 71–5 indirect costs 76–8 reduction 145 and value 67 variable 71–5 cost-to-serve 305–7 creditors 69 customer facing teams (CFTs) 52 customer loyalty 45–6 customer profitability 306 customer relationship management (CRM) 47–9, 57 customer responsiveness 142, 204 customer service 44–50, 57 customers definition 34–5 expectations 35 marketing perspective 34–6 measures to put first 223–4 segmentation 36–43 see also consumers customer value analysis 53–4, 55 Cymru, case study 278–80 D-time 149–53, 161–4, 165, 209 data collection 155 Dawnfresh 107 debtors 68–9 decision making, joint 222–3 defects 141, 186, 195 Dell 150, 211 Delphi 269 demand characteristics 209–10 forecasting 174 planning approaches 177–81 demand chain 14–15 demand management 173–4 demand profile 53, 54 demand time see D-time dependability advantage 19–21 dependent demand 174 design for logistics 211 design strategies, lean thinking 197 developing economies 106–7 differential advantage 39 direct costs 76–8 direct product profitability (DPP) 76–8, 94 discretionary costs 78–80 downstream collaboration 303–5 downtime 186 e-business 238, 239 economic batch quantity (EBQ) 177–9 economic order quantity (EOQ) 178, 179, 180, 199 EDF 23 efficient consumer response (ECR) 67, 204, 242–7, 261 LOGI_Z01.QXP 17/10/07 10:45 Page 313 Index Electro-Coatings Ltd, case study 157–61 electronic collaboration 260, 261 electronic data interchange (EDI) 5, 205, 238, 244, 253, 256 electronic integration 238–9 electronic point of sale (EPOS) system 5, 239 electronic point code (EPC) 245 electronic transactions 238 enabling technologies 244–6, 256–7 end-customers see customers engineered costs 78–80 enterprise-level reality check 215 equipment, cost reduction 145 Esprit 126 Esso 4, 267 Everglo, case study 48–9 facility design, lean thinking 197–8 factories focused 111–12 individual 121–2 factory gate pricing fast-moving consumer goods (FMCG) 36, 238 Filmco, case study 77–8 financial ratios 69–70 fixed assets 69 fixed costs 71–5 flow charts 155 flow logistics 233 focal firm, in supply chain Ford 9, 54, 222, 270 case study 190–2 Ford Production System (FPS) 190–2 forecast error 209–10 forecasts 143–4, 218, 225–6 form postponement 210–11 fourth generation global shift 102 fourth-party logistics (4PL) 211 funds flow 65 future internal alignment 298–302 manging with cost-to-serve 305–8 supply chain manager 308–9 upstream and downstream collaborative opportunities 302–5 Gantt chart technique 156 General Electric 222, 223–4 geopolitical threats 110 global consolidation 106–9 Global Lighting, case study 58–63, 276 Glup SA, case study 79–80 GM 131, 234 GM Mexico 234 handling 103 heijunka 285 Heineken 216 Hewlett Packard 121, 224–5 holding costs 106 Honeywell 222 IKEA, case study 45 independent demand 174 indirect costs 76–8 information flow 6, 14–15 information revolution 35–6 information sharing 239, 274 integrated processes 285 integration electronic 238–9 inter-company 237 in supply chain 233–62 vertical 267 inter-company integration 237–8 inter-firm planning and control 181–4 internal alignment 298–301 internal integration 235–7 international logistics case study 126–8 location 115–20 organising 120–8 pipeline 108–9, 116–17 risk in 109–10 internationalisation drivers of 101–10 logistics 99–101, 136 supply network 282–4 tendency towards 111–15 Internet 35–6, 205, 238 inventory centralised 112–15 internationalisation 102 managing 177–81 risk response 131 unnecessary 194–5 value 68 vendor-managed 252–5, 261, 285–6 inventory carrying cost 178 inventory-holding costs 95 ISO 9000 accreditation 24 Italian districts 281–4, 291 313 LOGI_Z01.QXP 314 17/10/07 10:45 Page 314 Index Japan keiretsu 269, 280–1, 291 partnerships 274 production methods 190, 192 supplier associations 277 supply chain relationships 267 jidoka 190, 191 joint decision making 222–3 JP Morgan Chase Vastera 65–6 just-in-time ( JIT) 184–92, 199 case studies 187–9, 190–2 costs 146 JIT2 concept 237, 261 little JIT 184 material flow 13 and material requirements planning 190–2 and Quick Response 256 system factors 185–7 kanban 59, 61, 62 keiretsu 269, 280–1, 291 LaCrosse Footwear 131 layering and tiering 120–1, 136 lead suppliers 276 lead time frontier 139–40, 168–9 lead times 116 see also time lean production 197–9 lean supply 207 lean thinking 172, 192–8, 226 leverage items 269 Li and Fung 205–6 localisation 101 location, international logistics 115–20 logistical postponement 211 logistics case study 4–5 and competitiveness 15–25 costs 94 definition future challenges 297–310 internationalisation 99–137 in the news 107–8 performance objectives 30–1 priorities 50–5 reverse 129–30 and supply chain management 6, 30 time-based approaches 140–6 Macerata shoe district, case study 282–4 Magna International 273 make to order (MTO) 161, 174 make to stock (MTS) 161, 174 manufacturing planning and control system (MPC) 172, 173–4, 177, 198 margin-driven behaviour 523 market segmentation 36–43, 212–14 marketing 34–6, 162 marketing mix (4Ps) 39–40, 57 Marks & Spencer 25, 171–2 master production scheduling (MPS) 152, 175 Matalan 25 material flow 6, 12–14 material requirements planning (MRP) 58, 59, 61, 175, 190–2, 199 matrix twist 43 McDonalds 101 mean average deviation (MAD) 174 measurements, performance measurement 147–53 Mercedes 271 modularisation 271–2 Morita, Akio 143 motions, unnecessary 195 muda 192, 204 Nestlé UK 132, 260, 252 Nike 301 case study 114–15 Nissan 273, 281, 285 Nokia, case study 21–2 non-critical items 268 obsolescence 105–6, 143 on-shelf availability (OSA) 161 open market relationships 274 operating environments, classification 214 operation release tickets (ORTs) 153 opportunism 289 order qualifiers 23–5, 206 order replenishment cycle 195 order to production cycle 195 order winners 23–5, 209 original equipment manufacturers (OEMs) 121 outsourcing 69, 219 overproduction, waste 194 P:D ratios 146–53, 147–64 P-time 148–9, 150–1, 161–4, 168, 176, 209 partnerships, supply chain 274–5, 286–90 performance measurement 146–53 performance objectives 30–1 periodic order quantity (POQ) 179, 180 LOGI_Z01.QXP 17/10/07 10:45 Page 315 Index periodic review 181 pick accuracy 17 plants, individual 121–2 postponement strategy 210–11 power, in supply chain 289 Power Gen 23 Powerdrive Motors, case study 40–1 price, focus on 290 priority planning 182 process technologies differences 181 processing, inappropriate 194 Procter & Gamble 101, 109, 234–5, 252, 302–3, 304 case study 246–7 product design, lean thinking 197 product development 162 cost reduction 145 lead time 143 lean thinking 196 product innovation 142–3 product obsolescence 105–6, 143 production time see P-time promotion, retailing 37–8 pull scheduling 170, 194 purchase portfolio matrix 267, 268 push scheduling 184–5 quality, measures of 147–8 quality advantage 16–17 quality costs 145 quality of service 44–50 quick response (QR) 255–7, 261 radio frequency identification devices (RFIDs) 244–6 Reckitt Benckiser 301–2 reconfiguration process 122–8 Regional Distribution Centres (RDCs) relationships, supply chain relationships 257–9, 266–73, 290–1 reorder point 178, 199 research and development (R&D) 108 resource planning 174 retailing, behavioural segmentation 37–8 return on investment (ROI) 67–71, 93 reverse logistics 129–30 risk international 109–10 readiness for 130–2 Royal Mail 19 Saga sports 133–4 Sainsburys 107 sales, value 67 sales and operations planning (SOP) 175, 225–6 Sara Lee 252 schedule variability 19–20 seasonality 37–8, 210, 216, 254 segmentation 36–43 case studies 37–9, 40–1, 42–3 priorities 50–7 supply chain 212–14 self-interest, in supply chain 289–90 service, quality of 44–50 shareholder value 66 shoe production, supply network 282–4 shop scheduling 153 Sialkot soccer ball industry 133–4 single minute exchange of dies (SMED) 196–7 small-batch production 196–7 Smog Co., case study 187–9 social responsibility 132–5, 136 sourcing, international 106, 131, 136, 219 span measurement 223–4 stakeholders 85 standard component 176 stock keeping units 307 strategic items 268 strategic positioning 29 strategies, supply chain 25–30 strategy, defining 26–7 Sun Microsystems 276 supplier associations 277–80, 291 supplier development 284–6 supplier-in-plant 237 suppliers Italian districts 281–4, 291 keiretsu 280–1 291 lead suppliers 276 management 276 networks 277–84 supply base, rationalisation 275–6, 290 supply capabilities 210–11 supply chain agile supply chain 203–28 competitiveness 15–25 corporate social responsibility in 132–5 customer-responsive 142, 204 definition 6–7 financial model 88–9, 90 future changes 297–310 game plan 173–84 integration 233–62 and internal alignment 298–301 315 LOGI_Z01.QXP 316 17/10/07 10:45 Page 316 Index internationalisation 282–4 lean supply 207 managing inventory 177–81 partnerships 274–5, 286–90 performance measurement 146–53 push and pull scheduling 184–5 relationships 257–9, 266–73, 290–1 segmenting 212–15 strategies 25–30 structure and tiering 8–12 time-based mapping 153–61 virtual 205 Supply Chain Council 89, 92 supply chain management balanced scorecard 87–8, 89 definition 7, 9–10 global 126–8 internal alignment 298–32 and logistics 6, 30 supplier management 276 supply chain manager, future 308–9 supply chain operations reference model (SCOR) 89–93, 94 supply network 9, 10–12, 204 supply pipeline, performance measures 148–53 supportive capabilities 18–19 synchronisation 12, 285–6 tags 244–6 Talleres Auto, case study 28, 147 target stock level (TSL) 181 task force 154 Tesco 6, 8, 34, 37, 267 case study 4–5 tiering suppliers 269, 272–3 supply chain 8–12, 120–1 time and competitiveness 17–18, 140–6 lead-time frontier 139–40, 168–9 P:D ratios 146–53 as performance measure 147–8 time-based practices 164–7 time-based process mapping 153–61 time between orders (TBO) 179 time-to-market 105–6, 126–7 tolerance zone 86 total productive maintenance (TPM) 186 total quality control (TQC) 195 Toyota 20, 131, 146, 277 case study 190–2 Toyota Production System (TPS) 190–2 trade-off relationships 141 transactions, electronic 238 transport international 103, 110 risk readiness 131 waste 194 uncertainty, dealing with 21–2 Unilever 101–2 upstream collaboration 302–3 value 66–71, 93–4, 193–4 value-adding time 155 value chain 193 value disciplines 46–7 variability, control of 19–21 variable costs 71–5 variety, increased 142 vendor-managed inventory (VMI) 252–5, 261, 285–6 vertical integration 267 vertical retailers 126–7, 240 Victoria SA, case study 175–7 virtual integration 224–5 virtual organisation 211 virtual supply chain 205, 285 Vision Express 17, 19 voice of the customer (Voc) processes 222–3 Volkswagen (VW) 17, 271 volume-driven behaviour 52–3 volumes variation in demand 210 Voluntary Inter-Industry Commerce Standards Committee (VICS) 248, 251 waiting, waste 194 Wal-Mart 37, 248, 252 walking the process 155 warehouse dust test 216 Warner Lambert 248 waste seven wastes 194–5 time-based process 156, 166 WheatCo 286–8 Wiltshire Distribution Transformers (WDT), case study 151–3, 161 working capital 68, 145 working routines 182 Xerox, case studies 13–14, 212–14 Zara 240 [...]... manufacturer to make and deliver the car I want? And why are the products I want to buy so often unavailable on the shelf at the local supermarket? These are questions that go to the heart of logistics management and strategy Supply chains today are slow and costly compared with what they will be like in a few years’ time But let us start at the beginning, by thinking about logistics and the supply chain in terms... Logistics and the supply chain tems it will use; managerial, because it encompasses decisions about sourcing, making and delivering products and services within an overall ‘game plan’ Key issues This chapter addresses four key issues: 1 Logistics and the supply chain: definitions, structure, tiering 2 Material flow and information flow: the supply chain and the demand chain 3 Competing through logistics: ... CHAPTER 1 Logistics and the supply chain Objectives The intended objectives of this chapter are to: ● identify and explain logistics definitions and concepts that are relevant to managing the supply chain; ● identify how supply chains compete in terms of time, cost and quality; ● show how different supply chains may adopt different and distinctive strategies for competing in the marketplace By the end... exploiting their partners in the supply chain Often they can – in the short term But winners in one area are matched by losers in another, and the losers are unable to invest or to develop the capabilities needed to keep the chain healthy in the long term The emergence of logistics has therefore been dependent on the development of a cross-functional model of the organisation, and on an understanding of the. .. improve supply chains of the future LOGI_A01.QXP 3/17/08 9:35 AM Page xxv Plan of the book Part One COMPETING THROUGH LOGISTICS Chapter 1 Logistics and the supply chain Chapter 2 Putting the end-customer first Chapter 3 Value and logistics costs Part Two LEVERAGING LOGISTICS OPERATIONS Chapter 4 Managing logistics internationally Chapter 5 Managing the lead-time frontier Chapter 6 Supply chain planning and. .. Tesco’s supply chain so that its processes are stable and in control, that it is efficient, and that it is correctly structured to meet the logistics needs of material flow and information flow Thus logistics can be seen as part of the overall supply chain challenge While the terms logistics and supply chain management are often used interchangeably, logistics is actually a subset of supply chain management. .. flow through the supply chain (Gattorna, 1998: 2) The degree to which the end-customer is satisfied with the finished product depends crucially on the management of material flow and information flow along the supply chain If delivery is late, or the product has bits missing, the whole supply chain is at risk from competitors who can perform the logistics task better Logistics is a vital enabler for supply. .. competitive criteria in the marketplace 4 Logistics strategies: aligning capabilities across the supply chain 1.1 Logistics and the supply chain Key issues: What is the supply chain, and how is it structured? What is the purpose of a supply chain? Logistics is a big word for a big challenge Let us begin by giving an example of that challenge in practice, because that is where logistics starts and ends CASE STUDY... to the retailer, so that material flow can be accurately planned and controlled The logistics task of managing material flow and information flow is a key part of the overall task of supply chain management Supply chain management is concerned with managing the entire chain of processes, including raw material supply, manufacture, packaging and distribution to the end-customer The Tesco UK supply chain. .. Chapter 7 The agile supply chain Part Three WORKING TOGETHER Chapter 8 Integrating the supply chain Chapter 9 Purchasing and supply relationships Part Four CHANGING THE FUTURE Chapter 10 Logistics future challenges and opportunities LOGI_A01.QXP 3/17/08 9:35 AM Page xxvi 10:36 Page 1 Part One COMPETING THROUGH LOGISTICS Our model of logistics structures the supply network around three main factors: the flow ... of the book xv xvii xix xx xxiii xxv Part One COMPETING THROUGH LOGISTICS Logistics and the supply chain Introduction 1.1 Logistics and the supply chain 1.1.1 Definitions and concepts 1.1.2 Supply. .. four key issues: Logistics and the supply chain: definitions, structure, tiering Material flow and information flow: the supply chain and the demand chain Competing through logistics: competitive... competitive criteria in the marketplace Logistics strategies: aligning capabilities across the supply chain 1.1 Logistics and the supply chain Key issues: What is the supply chain, and how is it structured?